Patrick McKenzie

Introduction

Stripe Atlas, which helps internet companies get up and running, frequently gets asked questions by software-as-a-service entrepreneurs on how to improve the pricing and packaging of their SaaS products.

Some of the entrepreneurs generously allowed us to talk about their pricing strategy publicly, to help the next generation of SaaS companies.

This advice is distilled from my career in running and consulting in various SaaS companies. Your mileage may vary; I’d encourage you to experiment often and boldly with pricing, as it is the easiest needle to move in your company. (The tendency of most SaaS companies is to set prices without much consideration and leave them alone for years at a time. I’d encourage you to revisit them quarterly.)

By coincidence, most of the companies which we’ll be talking about sell SaaS on a low-touch model. Pricing for high-touch SaaS is similarly nuanced; we’ll cover it in the future.

We’ve organized the case studies based on the primary market for the products.

Pricing and packaging for things with no physical form

Pricing is easy enough to understand.

Packaging is a jargon word coming from marketing of consumer packaged goods, like soap. In SaaS, it refers to a company which has one particular underlying product which they make available to different customers in slightly different ways at different price points.

In low-touch SaaS, the most common way packages are presented are as different columns in a pricing grid, with each column corresponding to a plan, offered at a different price, with differential access to features or maximum allowable usage along some axis interesting to the business. This might be users (referred to pervasively, and unfortunately, in the industry as seats) or servers or something with a closer connection to the problem domain.

Selling to consumers

Cirtru case study

Cirtru helps match people with new roommates. The customer is the person seeking a roommate, not the person seeking a new apartment.

Their existing pricing:

Our commentary:

Reduce decision fatigue for customers

You’re asking the user to make a big decision here: Concierge or Premium Listing. Those achieve different goals for different people.

The core insight here is great, which is that some people want to buy a tool and some people have more money and just want to buy an outcome. The desired outcome is “Find me a paying tenant who probably won’t skip out on rent or murder me in my sleep.”

I’d probably position that choice explicitly:

Find me a roommate / I want to do my own legwork finding a roommate

I’d default people into the first option and either deemphasize the details of the second (via greying them out or something) or hide them until someone interacted with the downsell option.

This decreases my cognitive load to make the decision:

“Do I want you to find me a roommate?” Of course yes, that is why I am here.

“How long should we look?”

And my answer to that is probably “I don’t know, as much as required, but I want the roommate fast”, which suggests to me as the user that I don’t conceive of the value of this service along the same axis that you conceive of charging for it. You want to charge for your costs. I don’t want to pay you more for concierging longer; I want to pay you more for concierging more efficiently. The ideal for me is probably paying you a success fee.

Whether that is operationally sound for you to offer or not, I don’t know.

Sell more; talk less

We manage your listing on Cirtu and other portals [like Craigslist, presumably? If so, name them.]

We screen communications; you get everything sorted in one place.

You talk to only those prospects you want to talk to; you pick your roommate.

~~$400~~ $250 (limited time offer)

The Cirtru guarantee: We’re very good at what we do. We’ll refund 50% of the purchase price if we can’t find you a roommate in 15 days or 75% if we can’t find you a roommate in 30 days.

Cointracker case study

Consumers are notoriously price sensitive, but sometimes software is sold to individuals who, by construction, probably have a lot of money. Cointracker is a great example; it assists cryptocurrency hodlers with tax compliance.

Their original pricing:

Our commentary:

Getting the aesthetics of pricing correct matters in B2C

$X.99 pricing is not generally used in B2B or prosumer (professional consumers) services because it communicates cheapness; I’d suggest you drop the 0.99 accordingly here, for aesthetic reasons. (No series of A/B tests I’ve ever done generated as many strong opinions as whether it was better to price a product at $49, $49.99, or $50. Despite bikeshedding this to death at several clients, I’ve yet to see it really matter, so aesthetics win the day. If your data says differently, trust the data.)

Lite / Standard / Premium are weak names for SaaS plans because they don’t help a user make an instant decision on which plan is right for them. I’d consider Hobbyist / Active Trader / Financial Professional. After last year, cryptocurrency enthusiasts certainly shouldn’t be hurting for money to pay for tax data collection.

I’d generally advise against having Unlimited anything available for $999. If a hedge fund comes to you and says “Oh, awesome, I want to adopt this for my funds’ tax reporting”, clearly $999 is the wrong price for that user. Don’t anchor the custom services which they almost certainly need to $999.

Charge more, generally

Charge more! Your offering presently labeled Premium has the value proposition “You could spend $5k talking to a non-specialist accountant who would give you the wrong answer here, resulting in you paying tens of thousands of dollars extra taxes and then get audited anyway because his work product would look obviously fishy. Or you can use our services, get the right answer, and have clearly high-quality work product.”

I’d probably increase your pricing to $99 / $499 / $2,499. This intentionally prices out pathological customers on the lower end, who will be exceedingly difficult to deal with. It is my impression that this market is rife with them and that they will require a lot of handholding.

If a person didn’t make tens of thousands of dollars while doing 1,000 transactions in 2017 in cryptocurrencies then, bluntly, there is something wrong with that person’s ability to make good decisions, and you should probably not seek their custom.

Charge more for priority customer service

What does “Dedicated” customer service mean? Does that imply that the lower plans don’t have CS available? That’s probably not the optimal way to phrase it; I might phrase it as “Priority” customer service.

This is an easy thing for any SaaS company to operationalize, by the way—all you need is a special email address that e.g. adds a label in your ticketing tool or gmail inbox, and then you read that label first every day while you’re answering email. That is all priority has to mean!

This is one of the easiest ways available to get price-insensitive customers to self-select as price-insensitive. Many SaaS entrepreneurs are emotionally discomfit by optimizations like this. You shouldn’t be, if you have confidence that your product works as described; a well-off person telling you “I am willing to pay extra for the white glove service” is not only doing that with regards to your firm. They are reaching back across their history of working with other firms and declining to use the cheapest available service because their experiences with commodity services have not been wonderful. Telling them that you have a premium service available gives them permission to adopt your service, which is in your mutual interest, and helps you subsidize the availability of your service to more price-sensitive customers on your other plans.

(If you’ve followed the cryptocurrency space in the last year, you probably understand why many investors might have the reasonable fear that your baseline expectation for customer service is “Feel free to send an email to /dev/null.” Making it clear that you answer your emails is a differentiating feature in this space.)

Selling to undifferentiated SMBs

The SaaS industry often describes sales of very horizontal applications as “selling to SMBs”, even though small-to-medium-sized businesses have a more official definition at various governmental agencies than “Well it’s not an individual person and not Boeing so it must be an SMB.”

Entrepreneurs new to SaaS often assume that most SaaS is sold to undifferentiated SMBs. This is probably not accurate; while there are many examples of software products which are very horizontal (sold across a variety of industries, customer archetypes, and sizes of target firm), much SaaS is actually very targeted.

This makes advice for SMB pricing a bit harder to give in the abstract, and as you’ll see, a lot of the opportunity is using pricing/packaging to assist your efforts in honing in on a concrete understanding of a target customer and delighting them, as opposed to being mediocre for a larger audience.

FormAPI case study

FormAPI makes it easy for programmers to generate PDFs.

Their original pricing:

Our commentary:

Pricing a SaaS for technical users

Should I remove the credit card form on the sign up page? I’ve found that most people who sign up continue paying for the service. If I offer a free trial that doesn’t require a credit card, does that usually result in a higher number of conversions?

An excellent question! Net on net, removing the CC required upfront decreases conversions in the early life of a startup, until you’re sophisticated with regards to onboarding, in-app messaging, lifecycle email, and direct reachout by a customer success team. I would not suggest you remove the CC required from this free trial.

How many plans should a SaaS have?

You should expose few decisions to your users at signup. Attempting to forecast their use in advance is challenging for many users, so you should have less gradations between usage and give plans names which help users bucket themselves.

I count 8 plans. I would recommend you condense to 3 plus “call us for enterprise pricing” presented on the page. If you do have users which appear in all of these buckets, present 3 plans but keep the other ones in reserve; you can hide their existence on the pricing page until a link is clicked on, run a window over the plans (showing only a subset at any given time), etc.

For example:

Quick hack

50 PDFs per month

$49 / mo

(e.g. an internal application or pilot)

Production

1,000 PDFs per month

$99 / mo

(e.g. invoice generation for an e-commerce application)

Deployed

5,000 PDFs per month

$249 / mo

(e.g. line of business application)

Enterprise

We’d love to talk about your use case. Call us and speak directly with a founding engineer.

Your pricing page should continue the sales message

From starter plans to on-site and enterprise solutions — Choose the plan that’s best for you.

Nothing here promises value to the user; it’s all about mechanics which only you care about. Instead, you should reiterate what FormAPI does and why the plan they pick will be right for them:

Save weeks of development work on PDF generation; fits easily in the budget for any project.

Moving upmarket towards the enterprise

You’ve indicated a desire to attempt to sell this in a high-touch fashion, and that is a natural evolution for many SaaS apps which start targeting developers but find themselves adopted by materially sized businesses. Your goal for the first 10 times you attempt to sell this to a large customer is not to get the price correct, it is to thoroughly understand what your users want out of this software and what it is worth to them. Charge based on that.

Knowing nothing about a particular enterprise user, I would assume that for most of them this simply saves them 2~4 weeks of dev time at a fully-loaded cost of $25k a month plus maintenance, and accordingly I would probably start offering them two options:

$10k a year for our SaaS offering, which we either host for you or let you use on-premises

$25k one-time license + $5k a year maintenance commitment for the source code; you host it.

I would probe a lot with regards to what their expectations were regarding support SLAs; anything better than what you’d offer a $500 a month account gets a line item added to the invoice and that line item should cost $10k.

You should certainly walk up your prices if you discover that FormAPI is key to the processes of materially-sized businesses. If an insurance company builds their entire business around shipping forms betwee them, suppliers, and regulators, and they are on FormAPI, then that is a six figure deal, minimally.

Humble Dot case study

Humble Dot is a broad B2B app which helps teams keep informed about what other team members are working on. Their existing pricing:

$50 per month is not an appropriate maximum price for this product, because it will be instituted at materially-sized businesses to manage teams of professionals, and no initiative worth the repeated effort of professionals caps out near $50 per month. The best customers of Humble Dot would spend more on coffee discussing buying it than they would on actually buying it; that seems like a poor allocation of value.

Pricing pages should continue the sales message

Humble Dot’s pricing page leads with:

Transparent and Flat Pricing

I would strongly encourage you to have the title of your pricing page act like a sales representative. You have a mental of the mind for someone who has arrived at this page, right? What is your one-thought encapsulation of why they would buy Humble Dot? It can’t be simply that you’re offering Transparent and Flat Pricing, because I can offer you Transparent and Flat Pricing for a tuba, and you are not particularly enthusiastic about buying a tuba today.

I would encourage you to try a headline like:

We cost a lot less than not knowing what happened this week.

Similarly, your sub-header is giving me a response to a pricing objection. Do you know I have a pricing objection? I am probably on the pricing page because I have a pricing question, not an objection. Additionally, that is a very niche objection: if my company grows to the point where it has 100 people using Humble Dot, that doesn’t make it 50x as expensive to me as when there were 2 people using Humble Dot, it makes it 2,500x more valuable because the communication overhead of pairwise status updates increases at approximately O(n^2).

Don’t sell unlimited anything

Think of the largest customer that you can conceive of using HumbleDot. How does the anchor of “Everything we offer costs $50/month, flat” impact your pricing discussion with that customer? It decimates your ability to charge appropriate amounts for the software.

The impact of a relatively small business division missing its targets this quarter is hundreds of thousands or millions of dollars. That is the number you want to anchor enterprise sales against, not $50. You could pull teeth to get “ten freaking times what you usually charged” or you can step into the reality of B2B sales, where the cheapest service you can conveniently describe— taking out trash so your employees don’t have to—starts at about $800 a month because it isn’t even worth discussing a number below that with a business large enough to afford an office.

I would probably have the $50 plan flat for companies up to 10 employees, after which point their minimum possible payroll is, what, $30k a month or so? (Assumptions: full-time white collar employees in countries with costs similar to the US.) After that, $5 or $10 per employee sounds totally reasonable. You will likely “cost” your best customers more than that in staff time just filling out the updates—and, again, imagine how valuable those updates are.

FirmA case study

FirmA, whose name we’ve obscured at their request, automates financial performance analysis for businesses. They sell directly to end-users and through accountants as a sales channel.

Our commentary:

Minimize distinct products sharing a single pricing page

I would probably pitch your product for end-users and your product for accountants separately, on two separate pricing pages. You can link each page to each other in case someone ends up in the wrong place.

This would free up both mental bandwidth and visual real estate for having multiple pricing plans, which you should almost certainly have. This product creates 1000X+ as much value at a $10 million a month company as at a $10k a month company, right? Why would you charge them the same amount?

Directly price discriminating by customer success

I’d probably make the axis to differentiate plans from each other revenue tiers: up to $500k yearly, $5 million yearly, $50 million yearly, Hey I Just Met You And This Is Crazy But Your CFO Has Budget So Call Me Maybe.

I think you’re likely targeting ACVs of ~$500 (your current pricing), $5k, and $20k+ given those rough tiers, and that you’ll likely have to increase your level of sophistication on sales and service delivery to get into the higher tiers, but positioning yourself as capable of servicing them makes the entry offering more credible.

Using channel strategies

I love the idea of selling through accountants as a channel strategy. (This is when a SaaS company sells to a party with a relationship with a pool of customers in return for that party selling their product through those relationships. Typically, this results in the channel taking a cut of the price the end-user pays.)

You do not explicitly make the case for it here, which is that it allows accountants to benefit from the upside of selling a high-margin software product in addition to their lower-margin services work.

As a note for folks who haven’t worked in a consultancy before: you can model the margins in an accountancy at about 30% given that the accountancy has to pay salaries and expenses related to the employee accountants who do most of the work. When the accountancy adds a line item to their invoice for access to your software, that line item has ~80% margins. This is pretty attractive as an upsell for them, and for SMB-focused accountants, which do a supermajority of their billable hours for the year in tax season, it gives them both things to bill for in Q2 through Q4 and also an ongoing reason to be in touch with their clients. Services businesses generally benefit from improvements in their offerings which increase the cadence at which they are in front of their clients. It leads to happier clients, more opportunities for follow-on work, and more opportunities to collect referrals.

As this example demonstrates, it is helpful to thoroughly understand the business of one’s customers and/or channel partners. Understanding allows you to make relatively small changes to your offering which create outsized value for them. Often the changes are, by the standards of a software company which can quickly write code, almost trivial to deliver; for example, co-branded or white-labeled PDF reports would likely be very compelling for accountancies using your software to give their customers the impression of bespoke, authoritative guidance without costing professional time on high-quality one-off visual design. That feature is relatively easy for a software team to deliver but has impressive “wow factor” both for the channel partner and the end-user.

Vempathy case study

Vempathy helps use AI to analyze user interviews and usability tests for their emotional content.

Their existing pricing:

Our commentary:

Minor comment: nobody can “Choose plan” on Enterprise/Agency. I prefer the call-to-action “Call us” or “Speak with us”, in both cases directing someone to a contact form. You should not offer a 14 day free trial of your enterprise offering; you can build the demo into the sales process.

Can I recommend that instead of the Free plan getting a column that you immediately demote it to text under the columns with similar visual weight to “No risk, 30 day money back guarantee” gets?

Consider the copy We also have a free plan which does not offer analysis and hyperlinking “free plan.”

Is it clear from the pricing page what we charge customers for?

I read pricing pages for a living, which is not the case of most users of pricing pages. That said, the plan names are reasonably good and descriptive, so I think I’d be able to bucket my business accordingly based on them. (I might still tweak them, but they’re a lot better than Bronze / Silver / Gold, which would make me have to actually read what was included.)

I’d encourage you to make the pricing page less about the transactional details and more about winning the sale.

Don’t call the pricing page the pricing page on the pricing page

Plans & Pricing is a good title tag for SEO purposes, though I would generally put the product name in it as well. Plans & Pricing is a terrible headline; it chews lots of visual weight and customer brainsweat without paying its rent in improved conversions. The UX designer you’re selling to knows they’re on the pricing page; they just clicked a link or Googled with the specific intention of opening exactly this page.

A perhaps better headline, in a style which I’ve used to effect in my own software companies, is: “Pays for itself with a single [CONCISELY ARTICULATE YOUR VALUE].”

“Pays for itself with the time you’ll save analyzing one UX experiment”, for example. You might have wording that people connect to better than that.

Is the barrier to trial low enough?

If anything I’d be looking to raise the barrier! How would you communicate that this is the very valuable AI-assisted emotional analysis software used by the most sophisticated UX designers and researchers? I would demote the risk reducers to their proper status as minor details.

Do you think the pricing tiers make sense with regards to limitations and price points?

Two unlimiteds is at least one unlimited too many; I think you could probably eliminate “Unlimited Collaborators” without affecting the vast majority of customers. You can clarify it later on the page for people who are worried they have to pay per seat.

Charging based on AI-analyzed recordings as the primary axis makes sense. I think that is likely so much more valuable than having multiple teams/projects that I’d consider hiding the number of teams/projects from this table and only exposing that limitation in the software. See if anyone hits it. (If they complain that it wasn’t disclosed before purchase, upgrade them for free. I anticipate nobody will care, which means it doesn’t need to be on this page.)

Should we include an exhaustive features list?

Will it cause someone to choose to buy the software? Probably not. Instead, continue the sales message: how specifically does this reduce the amount of human work to pull stunning insights from user recordings? Put that on the page; supplement with details about features where appropriate.

Selling to tight verticals

It is generally easier to sell into SMB verticals (a particularly industry or customer archetype) than across all SMBs, because it is easier to laser-focus on their specific needs, understand the factors which impact their business, and speak the language of your users.

KitchenWhiz case study

KitchenWhiz creates kitchen plans for homeowners and professionals like carpenters.

Their existing pricing:

Our commentary:

SaaS entrepreneurs overestimate the benefit of low prices early

Many SaaS entrepreneurs describe their products as less mature than the incumbents and therefore they price far under the incumbents. This is almost always a mistake.

Your customers are not buying KitchenWhiz because it is bad but attractively priced. They are buying it because your value proposition is “It produces beautifully designed professionally-produced kitchen plans easily.” Your customer is likely in the trades and this is a revenue-producing tool in their business. I would encourage you to ask them what a single remodeling job typically costs; I suspect that they quite literally discard more materials as waste than they spend on KitchenWhiz at any of your contemplated price points.

You already are a revenue-producing tool for your customers, and you’re going to quickly iterate on this product and make it even better than it is now. You should price a bit ahead of where you think your maturity is; this lets you “grow into” the new price as your customers discover and onboard with you, and prevents you from having to go back to them and ask them for more money in the near future.

I would probably sell 3 packages of KitchenWhiz, with arbitrary contents in them that I leave to your best judgment. These price points are my default price points for a B2B SaaS sold on the low-touch model; they work across a range of firms and industries.

Monthly: $49 / $99 / $249

Annually: Same as above, but with one month “free.”

If you sell literally none of the $249 a month version then you can do away with it if you feel that is useful, but I think the market may surprise you.

Note that this proposed pricing is 10X to 50X the maximum pricing contemplated by the existing pricing. This demonstrates the power of doubling down on the B2B market when you have a product which could theoretically be used by a consumer or a business. AppAmaGooBookSoft are doing their best to convince customers worldwide that software should be free (or as close at makes no difference) and subsidized by extremely lucrative advertising/hardware/e-commerce/etc ecosystems attached to it. That is a hard market expectation to go against.

If you want to price SaaS sustainably, you probably want to target primarily business users.

Generous refund policies are to your advantage

I would generally encourage software sold on the low-touch model to offer refunds to customers who are dissatisfied. Refunds do cause a short-term cashflow hit, but dissatisfied customers are a much bigger threat to your business than that cashflow hit, because dissatisfaction that you don’t know about causes churn that is hard to control.

You should eagerly encourage customers who are very unhappy about your services to tell you why and with specificity; consider the refund a small consulting fee you’re giving them if it helps you.

Additionally, customers who are dissatisfied with a SaaS company’s services can always escalate the decision to not refund to their bank. The bank will often take their customer’s side over yours, since you are not their customer. It will be difficult for you to prevail in a dispute along the lines of “They promised me the software would do X / Y / Z but it didn’t so I asked for my money back and they said no.” Answering that dispute is a poorer use of your time than talking to customers or building software, and you likely wouldn’t win it even if you were entirely accurate in describing the software.

To demo or not to demo?

You’re trying to strike a balance between conversion rates and learning with the decision to offer free trials or not. I would maximize for learning right now: offer a call to literally everyone who starts using the software. Use it 80% for learning about their business and 20% for showing them the important parts of your software.

You should use these calls for customer development and for sales, not training—if they have questions, note them for later and produce screencasts or similar that you can show to everyone.

I would probably use the fact of the call and concierge onboarding to tell everyone that of course you charge for your services, just like they charge for their services, but that as a limited time offer you’ll retroactively waive one month of fees if they can commit to a 15 minute conversation about why the software didn’t work for your needs.

This is effectively a demo but puts the onus on the user to organize themselves to actually use the software or feel embarrassed, as opposed to the typical free trial, which is just “Try it, or don’t, either way really.” Committing to putting a software product through its paces is real work which software people, as inveterate early adopters, often underestimate. You’re asking a busy professional to change the way they do business with respect to an actual project with an actual customer who has an actual kitchen on the line. If you do not project manage them in the adoption of your software and process, you can reasonably expect for them to not make effective use of your trial during the time limit, mooting any benefit of it being available.

This is a very common failure case for free software trials; they carry a cost which, despite not being charged to a credit card, is much more material than software people give it credit for. We like them too much and we should be more considered about whether offering them is in the interests of our businesses or our customers.

Publica case study

Name pricing plans to sell them to the right users

The only purpose of the name of a plan, as communicated on the pricing page, is to provide the right customer the right nudge to choose that particular plan.

If you think of the sophistication spectrum among authors who publish their work online for money, I don’t think “Initial” likely helps any to make the correct decision; I would call that plan Hobbyist, both because it helps people who have yet to sell their first book select into that plan and it helps professional authors, who are quite vocal about that being their primary career identity, select out of the cheapest plan.

“Author” is a better name but perhaps not wonderful. How would you feel about Professional, Professional Author, or Midlist Author? (Midlist is a term of art in traditional publishing.)

Flagging a plan as recommended often increases the number of people who select it, but I would probably not name the plan “Recommended.” I might describe it as an Imprint (if I suspect my customers are either traditionally published authors or emotionally affiliated with the same) or something suggesting a small business (Cottage Publisher, perhaps?)

You asked:

Right now we’re giving a 14 day free trial period to any lead but we still ask for the customer credit card to start the free trial. Should we remove that requirement? I’m afraid that by doing that we might get more trials but have them be less qualified.

You are almost certainly correct: most B2B SaaS companies find that removing the credit card requirement increases the number of free trial signups they get but decreases the activation rate (the number of users who make material use of the software) and conversion rate to paying use. It is generally not worth it early in the lifecycle of your company. (Your business needs to be capable operationally of doing fairly sophisticated work to nurture customers to activation and then convince them to part with their credit card details later in the trials for it to win net here.)

Our plans have a lot of features, should we put them all on the pricing columns or only the ones that matter?

You should only include the most salient details on your pricing page. If there is a difference between plans which is not salient to your customers or to you, it should not be a difference between plans; it creates engineering work for you and frustration for your customers without doing the one thing that feature differentials is supposed to do, which is convince people to pay more for the software.

Do we need to offer different features on each plan or only different amounts of the maximum usage? i.e: Right now we charge a monthly or annual fee based on the number of users and publications each account has.

Fundamentally, the purpose of charging different amounts for software is that different users get different amounts of value from the software, and that you want to capture some portion of the differential value created between your least successful user and your most successful user.

All decisions about the pricing page are optimizations to approximate the value creation curve and charge for it.

The number of users / number of publications is an approximation for value created. Use of more sophisticated features might be another way to approximate. Is there another approximation available?

I would suggest that the best approximation for value created by a publishing platform is probably the amount of money it enables your customers to earn, and therefore I would probably charge based on count or total sum of transactions facilitated. George RR Martin should pay more than a hobbyist recipe book author, even if they have the same number of titles.

(Relatedly: I think your tiers are far, far too generous, if I understand them correctly.)

We have different customers with different needs. Is it OK to have different pricing models for each? For example, for publishers we charge based on how many publications and users they have. Universities have many, many more publications by nature of how they operate; we only want to charge them based on the number of users.

Absolutely yes! This is not done much by smaller SaaS businesses, because of the operational complexity and the degree to which it requires you to understand and operate in different market segments, but it is entirely possible for you to have “special academic pricing”, “the University edition”, etc.

You do not need a differentiated feature set to justify this; it can be entirely a marketing decision. The fundamental insight is that universities have incentives very different than for-profit publishers and that, since their incentives are different, treating them as if they were equivalent is not wonderful for either group. They also likely respond to different marketing messages, will have different feature needs in the future, and have a different value proposition in mind for working with you. Packaging the software differently to them helps you to discover and address these differences in the market.

FirmB case study

FirmB, whose name we have obscured at their request, sells a Shopify plug-in which assists e-commerce businesses in optimizing their conversion rates.

Their original pricing:

Our commentary:

I’d also name the plans a bit differently: Small Store vs. Sophisticated E-Commerce Retailer vs. Enterprise, maybe. Who can resist saying that they’re the sophisticated one?

Anchor your prices to the cost of experts

Businesses buy benefits, not features, so “Unlock advanced features” is unlikely to convince someone to upgrade from Essential to Business.

I might position that as: Like having your own automated CRO agency, at a fraction of the cost.

Do you know what e-commerce companies pay for conversion rate optimization specialists? I have some knowledge of what the typical rate cards are like in that industry. When I did CRO for software companies I charged $30k a week. That is probably above the price point for most firms which are hosted on Shopify but they certainly aren’t paying only hundreds of dollars per engagement. Accordingly, I would walk up the price of the Business offering and explicitly compare it in your sales material to hiring a CRO agency (minimum buy-in: $5k per month) or adding a CRO specialist to the team ($100k or more a year even for relatively unproven junior employees, when you evaluate the total cost of employment).

Incidentally, new business owners don’t model the true cost of employees’ time correctly. Assume the total cost of a white collar employee is about 140% of their quoted salary; that’s a good enough approximation to price SaaS against their true fully-loaded cost rather than their salary. Businesses have to budget for fully-loaded costs, inclusive of taxes, benefits, required contributions to social insurance schemes, and overhead.

It is to your advantage, when anchoring against the price of employees, to anchor off their true fully-loaded costs rather than their imaginary nominal costs (the salary number).

Pricing bundles effectively

I think that you effectively have an offering which bundles multiple discrete offerings which are popular on Shopify, correct? I would consider pricing your Essential plan up to $49 and then offering a less prominent (not a column, just a textual option below the main pricing grid) Getting Started plan at $29, which would allow only one widget (at any time). This lets price-conscious firms dip their toes into the water without cutting off the revenue from the substantial fraction of e-commerce shops which are actually legitimate businesses which pay for healthcare and everything. The difference between $29 and $49 is immaterial to them but certainly isn’t to you, once you’ve signed hundreds of them.

I’d price $199 to $249 immediately (since they’re perceived as the same amount by users); I’d probably price it higher than that, too, after you have dialed in the value provided via, for example, concierge onboarding.

Concierge onboarding

Want a great way to increase your conversion rate to mid-tier plans like the one you described as Business? Offer free consulting services which are bundled in with the offering and focused on getting someone onboarded successfully; this is often called “concierge onboarding.” If you’re worried about the amount of time required, you can restrict them to companies which elect the annual plan. (You should have an annual plan.)

Concierge onboarding makes your users more likely to successfully convert and more successful (so they are less likely to churn). In addition, early in the business it adds wonderful opportunities to talk with your customers and make sure you’re building the right features, training material, and workflows to meet their needs.

It also gives people who are less price sensitive a reason to hang their hat on your higher-tier offerings. What if I am making $500k a month of high-margin sales but simply am not sophisticated enough to know what multivariate testing is? Concierge onboarding helps me get into a detailed conversation with you, where you provide outstanding value by getting the plug-in set up to start increasing my sales automatically, and the opportunity for you to sell me on the value of multivariate testing. Win/win!

Selling to sophisticated businesses

Sophisticated businesses have, generally, greater ability to pay for SaaS because the right SaaS creates more value in their businesses. This is orthogonal to its complexity, degree of “secret sauce”, or what it actually does.

Accordingly, SaaS companies which sell directly into sophisticated businesses by construction should price at a premium to companies which are selling to the broader B2B market. Companies which sell across a variety of verticals should, where possible, segment out sophisticated businesses and package the offering so it delivers them premium services at the (substantial) price points they are used to paying for valuable services.

Geomodelr case study

Geomodelr sells into the oil & gas industry. Their existing pricing:

Our commentary:

Free is not a compelling value proposition to well-monied buyers

Historically, companies have offered software for free or nearly free to benefit from the software spreading as wide as possible. This is of sharply limited utility in selling B2B services, because price is often a proxy for value, particularly among savvy customers who are in industries which are (to pardon a pun) gushing with money.

Does “free” communicate to an oil company that the data / analysis / etc produced by your report is reliable enough to place a $X00k capital investment or a $Y million mineral rights lease? Does free comport with the values of decisionmakers in mining companies? Do they expect to get accounting or legal or insurance free?

I would discontinue the free version immediately. Send an email to existing free users saying that you’ve discontinued the offering and that you will honor their pricing for forever and, as a special reward for their loyalty in the early days of your company, you will give them a 20% discount to the paid version.

Going forward, while you can make tactical use of a limited free trial, you should probably not provide commercializable services for free again.

How to present yearly pricing

In the traditional SaaS pricing grid, there is a huge distinction between columns. Choosing between columns requires a Consequential Decision by your customer. You should minimize consequential decisions.

Monthly versus annual billing shouldn’t be a consequential decision.

The majority of your customers should not have strong cash-flow considerations dominating their software budget, because they’re highly-compensated professionals in a capital intensive industry which is happy to pay for engineering services. I would have the core offering be the yearly plan and have a toggle box to select monthly.

Have multiple packages

We’ve gotten rid of your free plan and consolidated the decision about billing cycle, so your company has essentially one package which it is selling now. There should probably be more than one packages available, to offer an appropriate incentive for companies which receive a lot of value to tell you “Actually, I receive a heck of a lot of value from this” and, simultaneously, convince them to pay more than companies which are more marginal to you.

I’d probably adjust your price points to $2.5k annual / $250 monthly for the core package (the first of many moves upward) and then test another price point at $10k annual (with either no monthly option or a $1k per month but billed quarterly option, to minimize how many checks you have to chase).

What goes in the more expensive offering? I don’t know. I’d start by putting priority support in that and then see what customers asked for.

Consider moving up-market to the enterprise

I’d also probably add an Enterprise offering where people have to call you for pricing. On your first dozen calls, you should just try to understand what they need out of the Enterprise offering and whether you can provide it. (If you are not comfortable doing that, call your existing paying customers, ask if they pay more than $50k a year for any software, and if so ask what they would need from you to justify paying more than that ballpark for you.)

We can help you, too

If you incorporate with Stripe Atlas, you’ll receive opportunities to get feedback on parts of your businesses from experienced entrepreneurs, investors, and subject-matter experts, similar to the Q&A which this article is excerpted from or our Q&A with Marc Andreessen.

Whether you’re running a company or just thinking about it, we’d love to hear of what challenges we could help you solve. Drop us a line at atlas@stripe.com if there is a subject you’d like to see us cover in more detail.

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